How Altcoins Complement Bitcoin

Bitcoin is the only proven viable cryptocurrency with a huge infrastructure, market capitalization and established network effects. However the 700 altcoins that exist today also have a purpose — and may even complement bitcoin.

Bitcoin has evolved from a ‘joke’ to changing the trajectory of systems in the world of finance. Bitcoin’s debates have also shifted from “Will bitcoin become a new currency?” to “How else can bitcoin make a difference in today’s financial system?”.

With that said, the vast majority of altcoins were inspired by Bitcoin’s success with the rest due to dissatisfaction.

Bitcoin: Revolutionising Money and the Financial Systems

The financial systems of the world are broken and as always, the casualties turn out to be none other than the the populations of the affected national currencies. As a result, millions of people have turned to bitcoin as a safe haven to escape the financial chaos.

Altcoins are not be the go-to asset during the financial chaos currently being experienced in Venezuela, India, and China, however, some altcoins have a role to play in the other areas of the cryptocurrency ecosystem.

The Need for Altcoins?

With currency wars currently escalating between the worlds major currencies, the last thing the cryptocurrency community needs is a ‘crypto-war’ between altcoin platforms. But as with any open and free market, healthy competition is certainly welcome and provides a great mechanism for selecting the best and most effective cryptocurrency features that may be suitable for inclusion in other cryptocurrencies such as Bitcoin.

Different cryptocurrencies have reasons for their existence. However, altcoins, on the whole, are working towards fairly similar goals — to bring liberty back to people and contribute to the remake of the worlds legacy financial systems.

Altcoins to Complement Bitcoin in Cryptocurrency Trading

The first way altcoins have complemented bitcoin is with liquidity. Altcoins with big transaction volumes make arbitrage feasible in the cryptocurrency markets. Investors can trade between bitcoin and other highly transacted altcoins to profit from the price differences.

The second is by adding anonymity and privacy. Bitcoin transactions are pseudonymous and not anonymous. When an identity is tied to a bitcoin address, then all associated transactions can be linked to it. In the cryptocurrency market, a few altcoins (such as Monero) try to offer more anonymous transactions (but the jury is still out on whether currencies such as Monero are “more private” than others). However, some hardcore bitcoin fans would not hold other altcoins for extended periods despite these additional features, viewing Bitcoin as the gold standard of cryptocurrencies or the reserve currency.

So how can altcoins help bitcoin to anonymize transactions? Bitcoin users can go to exchanges such as Shapeshift.io to exchange their bitcoin to altcoins and back — but to a different bitcoin address. By doing so, the layering of different coin addresses makes tracing of transactions much harder. The existence of altcoins also make any government’s attempt to “ban” bitcoin less meaningful (as there are many alternatives that could replace bitcoin).

Experimenting with Altcoins

Some developers create altcoins to experiment with new features. And there is no better way to test the feasibility of any feature than the release of the experimenting altcoins onto the open market. As the value of the bitcoin network is so high, it would not be wise for developers to experiment with new features into bitcoin directly. Therefore, some altcoins are, in fact, testbeds for features that may some day end up being incorporated into bitcoin.

Financial Infrastructure for Altcoins

Bitcoin is a stand-out in the crypto-crowd because of its vast network and infrastructure, including mobile wallets, exchanges and payment processors. The inconvenient truth is that the majority of altcoins are exchanged back into bitcoin as this is the only convenient cryptocurrency that can be used to directly purchase goods or services.

Thus, altcoins have inevitably complemented bitcoin and made bitcoin somewhat like the USD of the cryptocurrency market. The number of altcoins will likely continue to grow. But it is quite unlikely that all these altcoins will survive in a competitive cryptocurrency market.

Note – There are many scams out there with the aim of separating people from their bitcoin in ‘pump and dump’ altcoin schemes. Research before investing into any altcoin is important.

What are your thoughts on the ways for altcoins to complement bitcoin?

Share with us in the comment section below, we would like to hear from you.

Disclaimer: The above references is an opinion and is for informational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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Kei K

Kei K. is a freelance writer for bitcoin.com. She has been passionate about cryptocurrency since 2012. Kei K.'s interest lies in the macroeconomics, and she is particularly keen to uncover more beneficial real life usage of bitcoin.

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